SEC Ends Practice of Considering Settlement Offers Made Contingent on Related Waiver Requests
The SEC Division of Enforcement will no longer recommend a settlement offer conditioned on granting a waiver from automatic disqualifications resulting from certain violations, including - among others - disqualifications from being considered a Well-Known Seasoned Issuer or engaging in private securities offerings under Securities Act Rule 506 ("Exemption for Limited Offers and Sales without Regard to Dollar Amount of Offering") of Regulation D.
In announcing the policy change, SEC Acting Chair Allison Herren Lee stated that "waivers should not be used as 'a bargaining chip' in settlement negotiations, nor should they be considered a 'default position' under the SEC." She emphasized that the change in policy should reinforce "the 'critical separation' between enforcement and policy processes to 'enshrine' best practices."
Former SEC Chair Jay Clayton had changed the longstanding SEC policy in 2019 to allow for the consideration of contingent settlement offers.
Commentary
The announced policy change is an unfortunate step backwards. Allowing firms to make settlement offers contingent on receiving a related waiver made good sense. It streamlined the settlement process and allowed firms to know the collateral consequences resulting from agreeing to the settlement with certainty before being bound by the settlement, while still allowing the SEC to reject waiver requests it found unwarranted. The change back will complicate settlement negotiations and make settlement more difficult in certain cases. While this is a return to prior practice, the change could be a big deal if the Commission starts taking a harder line on granting waivers under the new leadership.